Which income protection plans offer cover to older clients?
Some insurers are better than others when it comes to making their income protection plans accessible to older clients. Plenty of advisers will have older clients who continue to work beyond the state retirement age, whether through choice or necessity.
Many of these clients will have a need for income protection for as long as they continue to work. So, it is important for advisers to know what age limits insurers are placing on their plans and where clients of any particular age can obtain cover. In this article, we will shed some light on this and highlight those providers who are best meeting the needs of older clients.
Income protection is designed to pay a percentage of someone’s income if they are too ill or injured to work and should ideally be in place for as long as that person is earning an income.
A client’s income may need to be protected for longer than used to be the case when most people retired by age 65 and had final salary schemes. Now people are living longer and are taking on greater responsibility for retirement saving due to the shift towards defined contribution schemes.
It means those who don’t have a big enough pension pot to see them through retirement either have to adjust their expectations to fit the reality of their financial situation or continue working, perhaps well into old age.
Aside from that, the state pension age reached 66 in October and is set to increase further, from 66 to 67 between 2026 and 2028. However, the maximum age criteria that insurers apply to their products vary, with some better than others at catering for the older age groups who would not have needed income protection in the past.
When considering income protection for older clients, there are two factors to be aware of. The first is the maximum age at which a client can take out a new policy (maximum age at entry) and second is the maximum age to which the plan will cover the client (maximum age at expiry).
As our table shows, the highest maximum age for entry into an income protection plan is 64 and this is offered by two insurers – Zurich and British Friendly, on its Protect plan. Most plans – 14 out of the 19 insurers listed in our table – allow entry up to age 59.
There is a 10-year difference between those insurers offering the highest maximum age at entry and the lowest, which is 54.
Of the plans with this limit, Holloway Friendly Classic Plus and Cirencester Friendly My Earnings Protected – have set the maximum age a client can be at expiry at the highest level, age 70. The AIG YourLife Plan Income Protection has set its maximum age for expiry at a slightly lower level (age 69). But this is quite a way off the lowest maximum age a client can be at expiry, which is 65. Only one plan, British Friendly’s Breathing Place, has set its maximum age criteria that low.
It is worth remembering that there are reasons why insurers apply age limits on their plans. As people age, they are more likely to become ill or disabled and this makes them a higher risk for insurers, who need to balance risk with the need to make a profit. Having no age limits at all would most likely be prohibitively expensive to the client in terms of the premiums.
However, some studies have shown that working past age 65 has a positive impact on an individual’s health. In 2016, a study published in the British Medical Journal’s Journal of Epidemiology and Community Health, suggested that working even a year beyond retirement age was linked to a 9-11 per cent lower risk of dying during the 18-year study period, regardless of health.
It is clear from looking at our table that the highest maximum age a client can be at expiry of an income protection plan (age 70) has become the industry standard. No less than seven insurers – offering a total of 12 plans – provide cover to age 70, which is four years above the current state pension age.
This can only be a good thing as it shows insurers are, on the whole, keeping pace with the changing nature of employment and retirement trends among older age groups. After all, if the protection industry is trying to get more people to understand the risks of not having sufficient cover, the products being sold do need to cover a person’s working life and not just part of it.
Another four insurers – who have a combined total of six propositions in the market – provide income protection up to age 69, which is still a good three years after the state retirement age.
To get a broader idea of how flexible insurers are in their age criteria for income protection, it may also be worth having a brief look at their minimum ages at entry. Most policies are available from age 18, which makes sense given that before that, many young people are in full-time education. However, several insurers – Cirencester Friendly, VitalityLife and Zurich provide cover to those aged 16, while AIG and LV= provide cover from age 17.
Taking this information into account, Zurich stands out for having the broadest age range at entry, from age 16 to 64. With the maximum age at expiry being 69, it is a whisker away from the highest (70) in this respect too.